Tag Archives: oil

An Interesting Setup in Oil

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A few days ago while driving to work I noticed the price of gas was $2.97/gallon and then while driving home the price had risen to $3.55/gallon. A 58 cent increase in under 12 hours. You have to love commodities!

The chart we are going to look at this morning is light crude oil. First lets look at the ultimate oscillator, which measures buying pressure based on three-weighted time periods. As you can see with the blue circles, since early 2010, whenever the ultimate osc. breaks above 70 we typically see crude either drop or consolidate. The price of crude oil is also back to the previous low set in December, which could act as resistance.

Oil has risen nearly 20% from its June low, but that doesn’t mean it couldn’t continue its trek back to $100/gallon. It’s often best to not try to front-run moves like this, allow price to confirm what we are seeing here. It’d be nice to see some short-term weakness before retesting its current price while allowing a negative divergence to be created with the ultimate osc. in order to confirm our thinking….time shall tell.

 
Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+.

Where the Price of Gas Could Be Headed

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I’ve talked the price of gas a few times (here, here and here) during its recent decent. James Hamilton who is the professor of Economics at the Univ. of California in San Diego recently discussed the price of gasoline and its relationship to Brent crude on his blog Econbrowser, except below.  

From James Hamilton:  

The price of gasoline and price of Brent turn out to be cointegrated, meaning that any permanent change in the price of Brent eventually shows up as a permanent change in the price of gasoline. The coefficients of the above relation are very much what you’d expect. A barrel holds 42 gallons, and the estimated coefficient (0.025) is 1/40. The intercept (0.84) captures an average state and federal tax of 50 cents per gallon plus a bit over 30 cents in markups and other costs.

With Brent on Friday at $91.50 and an average retail gasoline price about $3.47, we’d thus expect gasoline prices to come down another 35 cents a gallon or so from where they were on Friday. Historically those adjustments usually come pretty quickly. For example, last December U.S. gasoline prices temporarily fell about 25 cents/gallon below the long-run relation, but by March they were right back on track.

If gasoline prices do fall from their value in April near $3.92 to $3.12, that would be an 80 cents/gallon swing. With Americans buying about 140 billion gallons of gasoline each year, that translates into an extra $112 billion over the course of a year that consumers would have available to spend on other things besides gasoline.

Source: Gasoline prices coming down  

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer.